For the 10th year, Strategy& analyzed R&D investment at the 1,000 biggest-spending public companies in the world. In addition to undertaking our recurring analysis of R&D spending trends, we interviewed and surveyed more than 500 R&D executives and innovation leaders to get their perspectives on changes in innovation at their companies over the last decade and what they expect in the 10 years to come.

Our deﬁnition of the industrials sector includes makers of machinery and equipment, electronics, primary metals and metal products, and mining companies, as well as engineering, construction, and building materials companies.

Industrials’ R&D spending has generally risen over the decade

2010

$69b

2014

$41b

2005

post-crisis dip
69

64 43 44 46 52 51 56

66

41

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Sources: Bloomberg data; Capital IQ data; Strategy& analysis. Results reﬂect the previous ﬁscal year, as of June 30 of the respective year shown. More information about our methodology is available on p. 15 of our strategy+business (Issue 77, Winter 2014) article, “Proven Paths to Innovation Success.”

Industrial companies rank #4 in innovation investment
Overall, the Global Innovation 1000 invested around US$647 billion last year. Of that, more than US$69 billion was spent by industrial companies. That makes the sector one of the biggest spenders on innovation – although still behind the top three.

…but being great at innovation takes more than large R&D budgets
Each year we ask survey participants which companies they believe are the most innovative so that we can create our 10 Most Innovative Companies list. Their responses and our list of Top 10 R&D Spenders match less often than you might expect. Although not one industrial company has made the list of the top spenders over the past ﬁve years, two industrial companies have been recognized as top innovators every year during the same time period.

Moving in the right direction
Regardless of spending trends, most executives think their companies are moving in the right direction when it comes to improving innovation. That’s true for industrial executives too. More than three-quarters say they’ve gotten better at innovation and nearly half believe they’re outperforming the competition ﬁnancially as well.

Performing better ﬁnancially

Getting better at innovation

48%
My company is performing better than the competition in ﬁnancial terms

76%
My company is better at innovation today than it was 10 years ago, on the basis of the share of speciﬁc product or service ideas that have met commercial goals

Contributing factors:
better alignment getting closer to the customer

Note: Analysis is based on survey questions “How much better, if at all, is your company at innovation today than it

was 10 years ago, on the basis of the share of speciﬁc product or service ideas that have met commercial goals?” (base: 50) and “How do you perceive your company’s current overall ﬁnancial performance relative to competitors’?” (base: 50)
Source: Strategy& 2014 Global Innovation 1000 survey data and analysis

Aligning innovation and business strategies
Our overall research has shown that companies that closely align their innovation and business strategies perform better than those that don’t. More than two-ﬁfths of industrials respondents admit that their innovation and business strategies are not highly aligned, so there is room for improvement on this measure.

41%
My company’s innovation strategy is not highly aligned with its business strategy

59%
My company’s innovation strategy is highly aligned with its business strategy

How are companies better understanding their customers – and what’s coming next?
Building the factory of the future Using data to help customers understand themselves better

Whether you call it the industrial Internet, or Industry 4.0, industrial companies are already beginning to install the next age of automation. By digitally connecting across the value chain, companies can gain better visibility over demand, tailoring production and output to customer needs.
Keys to success: Outstanding data

analysis capability, willingness to invest in the necessary technology and talent, deep cooperation across the entire value chain.

Sensor technologies don’t just give companies a better handle on production: They can also deliver valuable information on how products actually get used. By understanding data on areas such as downtime and maintenance, industrial companies can help their customers get more value out of the products they sell – and potentially expand their service portfolio too.
Keys to success: Existing relationships

with customers that will agree to data analysis, integration of service offerings with product development.
Sources: PwC, “Industrie 4.0 – Chancen und Herausforderungen der vierten industriellen Revolution”; PwC, “The Internet of Things: What it means for U.S. manufacturing”; Strategy& analysis

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